Mobile giant Vodafone is in early discussions with the Tata Group to acquire its majority stake in mobile unit Tata Teleservices, also known as Tata Docomo, according to the Economic Times citing persons familiar with the matter.
Vodafone already…
Mobile giant Vodafone is in early discussions with the Tata Group to acquire its majority stake in mobile unit Tata Teleservices, also known as Tata Docomo, according to the Economic Times citing persons familiar with the matter.
Vodafone already owns over 74% of Vodafone India, the country’s second-largest mobile operator, and is in the process of taking full control of the subsidiary after receiving approval from the Foreign Investment Promotion Board (FIPB) earlier this week.
Buying Tata’s interest in Tata Teleservices, which is also 26%-owned by Japan’s NTT Docomo, would allow Vodafone to become India’s largest telco with more than 220 million customers, overtaking Bharti Airtel’s 195 million subscribers.
NTT Docomo has the right of first refusal to Tata’s 60% stake in the mobile unit, according to the Economic Times. But the Indian conglomerate can reportedly exercise its ‘drag along’ rights by forcing NTT Docomo to exit Tata Teleservices.
A source was quoted as saying that Vodafone, which has a substantial war chest since the sale of its Verizon Wireless stake for US$130bn last year, is looking to take full control of Tata Teleservices.
In September, the CEO of Vodafone India, Marten Pieters, described the operator as a “natural consolidator in the market” in an interview. He was quoted saying at the time that Vodafone was financially strong in the country and wanted scale, but that India’s regulatory conditions were not suitable for M&A.
A couple of months later, the government approved new M&A guidelines, which are expected to lead to greater consolidation within the telecoms sector. Specifically, a merged entity is now allowed to have up to 50% market share in any service area, as opposed to 35% previously.
As of 31 October 2013, Vodafone had an 18% market share nationwide while Teleservices had a 7% market share.
Tata Teleservices has been faced with a declining subscriber base over the last few months. Also, in early December, Tata was reported to be preparing a Rs40bn (US$646m) capital injection into the mobile operator after it failed to secure financing from banks.
Banks had declined to renew Teleservices loans until it could fund its annual losses, reports said.
NTT Docomo and Singapore’s Temasek, which holds 6% of the operator, may not be involved in the capital injection. Therefore, if Tata converted the debt, their stakes could be reduced.
In the past, Tata Teleservices had been linked to several other potential suitors including Russia’s Sistema and Norway’s Telenor.
Vodafone declined to comment while Tata and NTT Docomo were not immediately available for comment.
